Brexit: Retail, are you ready?
11 Apr 2019
By Debbie Bowen-Heaton, Partner at Oliver Wight EAME
Ever missed a deadline to fulfil a customer order? You’re not the only one – I’m looking at you, Brexit. The 29th March 2019 has been and gone, and the UK is still part of the EU - just. After initially approving a short extension to 12th April, Theresa May and the EU council have approved an extension to 31st October, with the caveat that the UK can leave as soon as Parliament approves a deal. However, there is still the possibility that Britain could still crash out of the EU in October if an agreement is not reached. Despite several Parliamentary votes, strained party talks and emergency EU summits in the past four weeks, it seems little has changed – it’s not so much a cloud of ambiguity, as so much a tsunami of uncertainty.
It’s precisely this uncertainty that the retail industry has (or should have) been planning for when the result of the referendum was announced in June 2016. Short of Brexit being cancelled, whether it’s a no-deal Brexit or a soft departure, the UK leaving the EU will significantly affect the way retail operates in a time when it’s already battling reduced profits, lower footfall and increased costs.
Integrated Business Planning
Brexit is just one of many considerable challenges facing the retail industry in the 21st century marketplace, alongside the dominance of e-commerce, stratospheric rents, hard-to-please consumers and a number of high-profile retail company closures. Even without uncertainty of Brexit, it’s clear retailers are having to change their approach from ‘reactive’ to ‘proactive’, and plan ahead for future challenges, and many are using Integrated Business Planning (IBP) to control the destiny of their businesses.
Costs & tariffs
With wallets already squeezed by rising rents and business rates, retailers are facing the very real possibility of a triple whammy, with the risk of tariffs adding significant costs to goods crossing over the border. It’s still unknown if the UK will remain in the EU customs union, but if it crashes out with no deal – and this is looking increasingly likely to be a real prospect – Britain would automatically switch to WTO rules. This would create whole host of additional complexities which would directly impact the cost of goods and thus affecting margins and profitability – some of these include: the introduction of sky-high tariffs (currently, as an EU member, the UK enjoys 0% tariffs), and delays at the border due to customs checks seriously impacting the supply chain.
In fact, retailers could be facing a quadruple whammy, with currency volatility causing further uncertainty and risk – especially if the British pounds devalues further, as it did following the 2016 referendum. Retailers will have to decide whether to absorb the costs or pass them onto the customer, with the former negatively affecting profits and the latter negatively affecting consumers.
However, there is a glimmer of opportunity – a devalued pound would make British goods more attractive to overseas consumers, as they would be cheaper to buy. Retailers could capitalise on a likely influx of tourists in search of a bargain, especially in the luxury and high-end sectors where a 10-15% reduction in price would see savings of hundreds of pounds.
“Time is money” and departing without a deal – or even with an unfavourable one – will prove very expensive for the thousands of businesses’ operating a just-in-time supply chain, as any border delays or lengthier custom checks will increase costs whilst simultaneously decreasing customer satisfaction. With even minor interruptions damaging the operational effectiveness of an industry already in the throes of one its most challenging periods in history, organisations may need to rewire their supply chains to remain afloat, let alone competitive. Alternatively, retailers could consider restructuring, establishing subsidiaries on the European continent or importing directly from non UK-based suppliers.
Labour & talent
The industry relies heavily on a migrant workforce, with around 300,000 EU nationals working in the retail sector. Restrictions on the freedom of movement could have a huge impact on the pool of talent and labour available, especially in light of a potential minimum earning threshold of £30,000 policy for new migrant workers; a severely restricted labour pool would not only make it harder for retailers to fill positions, but also increase labour costs.
Using a common sense approach, IBP thrives in unpredictability, allowing organisations to execute an effective strategic response to any situation with tools such as analytics and scenario-planning. With IBP the oil on the troubled waters of change, the savviest retailers are already reimagining their businesses and restructuring to both appeal to both the 21st consumer, and survive in a post-Brexit landscape. From a customer-facing standpoint, some are embracing an omnichannel experience, streamlining inventory and personalising stores to tailor to the demographic. Behind the scenes, retailers are optimising systems, services and supply chains from demand forecasting and planning to product development to ensure profitable growth